Langton Capital – 2018-01-12 – M&B Q1, staffing, US diners, London Hotels & other:
M&B Q1, staffing, US diners, London Hotels & other:
A DAY IN THE LIFE:
M&B update and counting our incoming crypto-currency cash to be getting on with so, for the moment, let’s move on to the news:
MITCHELLS & BUTLERS Q1 & XMAS UPDATE:
• M&B updates on Q1 & Xmas trading covering the 14wks to 6 Jan. It reports ‘trading through the core three week festive season was strong, with LFL sales growth of 3.9%.’
• M&B reports ‘Christmas Day was a record taking day with like-for-like sales growth of 5.4% and 225,000 meals sold.’
• Over the 7wks since M&B last updated, the group says ‘our sales performance has been encouraging, although impacted by the adverse weather particularly in the run up to the festive season.’
• M&B reports ‘the additional (53rd) week in the previous financial year impacts comparison of sales performance across key dates within this trading season.’
• Adjusting for its 53rd week, M&B reports LfL sales growth was 1.6% over the previous 7 weeks and 2.2% in the year to date. Unadjusted for the above, LfL sales to date were +1.1% with total sales +0.5%, impacted by the disposal of 79 units in the prior year.
• M&B reports ‘we continue to make good progress with our plans to build a more balanced estate, in particular premiumising our offers where possible and reducing the remodel lifecycle.’ The group reports ‘we have opened 2 new sites and completed 114 conversions and remodels in the financial year to date and remain encouraged by returns being generated. We expect to complete around 270 remodels and conversions in the full year.’
• M&B CEO Phil Urban reports ‘we are pleased to have delivered continued strong trading results over the important festive period in the face of difficult weather for many of our guests, indicating the attractiveness of our offers in a competitive market’.
• Langton Comment: M&B’s statement is broadly reassuring. The group’s LfL sales momentum has slowed somewhat but, given the snow in mid-December, this is hardly surprising.,
• This is a brief statement and we have no comments here on margin, though this is to be expected with a trading update.
• The fall of Xmas Day will have been positive and the outcome over the festive period as a whole would appear to be satisfactory. But for the weather, it would have been relatively good. Trading in January is likely to be considerably tougher and M&B brands are involved in discounting, along with those of a couple of the other majors and a large number of casual diners.
PUB, RESTAURANT & DRINK PRODUCERS:
• Discounting. Bella Italia sending out emails offering 50% off mains all weekend
• ALMR calls on government for a constructive future immigration policy, following a report citing hospitality as an area of labour shortage concern. Some 32% of hospitality jobs in London are carried out by EU workers. The ALMR says this ‘highlights the important contribution being made by EU nationals to the capitals hospitality sector and the difficulties businesses would face should they be unable to access labour from the EU.’ It adds ‘the Government has already made a commitment to EU nationals living in the UK, but it is crucial that any future immigration policy reflects the need for hospitality businesses to employ non-UK workers.’
• BBPA welcomes report on protecting the environment. CEO Brigid Simmonds says ‘the industry already has a good record in sharply reducing both energy and water use, and a strong commitment to recycling, through our packaging waste compliance scheme, SUSTAIN. The emphasis on reducing food waste is important, and we will continue to work on the guidance and advice that we already provide for pubs.’
• US restaurants have recorded their first positive quarter of LfL sales in 2yrs at plus 0.4% reports NRN. Black Box Intelligence reports that LfL growth in Q4 was 0.4% & says ‘this is the first quarter of growth in the last two years.’ NRN says ‘the signs of relative improvement that the restaurant industry began showing since the beginning of the quarter continued through December. Restaurant same-store sales posted 0.3 percent growth for the month of December. This was the second-best month based of sales growth since March of 2016.’
• US restaurant traffic still down 1.8% in December with increased prices more than compensating to give a positive LfL sales figure.
• TDn2K reports re US restaurant industry ‘although it is great to see the industry move away from the recurring story of declining same-store sales, we also must keep things in perspective.’ It says ‘December of 2016 had very soft same-store sales and traffic results, so lapping over those results didn’t pose much of a challenge. Over a longer view, same-store sales declined by -2.0 percent during the fourth quarter of 2017 when compared with that same quarter in 2015. Furthermore, the trend of declining guest traffic continues to plague the industry and is one that seems unlikely to reverse any time soon.’
• Diageo has agreed a new partnership with UberEats and UK convenience retailers that will see retailers work with Diageo as supply partners to fulfil beverage orders via the UberEats app.
• Former Busaba Eathai chief executive Jason Myers and sector investor David Ramsey are partnering up to launch an estate of high-quality country pubs with rooms called Grosvenors Pubs, the MCA has reported.
• BBPA has welcomed the new ‘Agent of Change’ bill introduced in Parliament to protect pubs and other venues. BBPA chief executive Brigid Simmonds said: ‘It is great to see this issue being pushed up the agenda, thanks to John Spellar who along with the Bill’s other sponsors are strong supporters of the Great British pub. I hope the Government will take up the issue as the bill moves on to its next stage. It is vital that community pubs are not placed under threat by new housing developments, where new residents may complain about noise from premises which have been there for hundreds of years’.
• Alcohol consumption in the US has fallen for the second year in a row in 2017, according to data released by the IWSR. Total alcohol volume consumption decreased 0.2%, with declining beer sales the main drag.
• BlackRock has bought a 5.79% share in Kent-based winery Chapel Down following a recent oversubscribed fundraising for the group.
• Black Friday 2017 was John Lewis’ most successful sales day in its history and also helped it to achieve its best ever week of sales. In the six weeks ending 30th December, the John Lewis Partnership posted a 2.5% rise in sales to £1.96bn
HOLIDAYS & LEISURE TRAVEL:
• London hotel boom coming to an end. STR says positive ‘Brexit Effect’ is beginning to wear off.
• STR has reported that London hotels saw supply increase by 3.1% in December versus the same month a year earlier. Demand was up only 0.3% resulting in a drop in occupancy of 2.7 percentage points.
• Hotel rates in December were up 0.4% on December last year. That is a material drop in real terms reports STR.
• London hotel REVPAR down 2.3% in December reports STR against CPI of 2.8% and reported hospitality wage increases in double digits. STR reports ‘although supply growth has affected London’s occupancy comparisons, December would be the U.K. capital’s 14th consecutive month of ADR growth. STR analysts noted that the “Brexit effect,” which drove a surge in international visitors in early 2017, seems to be wearing off as the value of pound sterling continues to climb.’
• ALMR warns Bath and North East Somerset Council it should proceed with caution before seeking Government approval to implement a tourist tax. It says ‘the consequences of implementing a tourist tax in the city are far from clear. Even a modest increase in costs for customers could have unforeseen and potentially harmful consequences.’
• STR reports US hotel industry positive in week to 31 Dec with occupancy up 3.6% and ADR up 5.8% to give REVPAR some 9.6% higher.
• NH Hotels’ shareholders have rejected a bid from Barceló. The board of the former says ‘the proposed transaction structure would not permit the creation of shareholder value over and above that which NH stands to create on a standalone basis.’
• The BBPA has welcomed the new ‘Agent of Change’ Bill recently introduced in Parliament. BBPA Chief Executive Brigid Simmonds commented: ‘It is great to see this issue being pushed up the agenda, thanks to John Spellar who along with the Bill’s other sponsors are strong supporters of the Great British pub. I hope the Government will take up the issue as the bill moves on to its next stage. It is vital that community pubs are not placed under threat by new housing developments, where new residents may complain about noise from premises which have been there for hundreds of years.’
• Retailers are posting strong peak season sales despite playing ‘catch-up’ following a sluggish start. Alistair Rowland, group general manager of specialist retail for The Midcounties Co-operative, said: ‘The market was always going to be tough this year because of the way the bank holidays fell, so most retailers will be playing catch-up. But it looks like this week will cover the shortfall and sales will be level by the end of this week and 5% up by the end of month.’
• Agents are reportedly still unclear how to legally incentivise customers not to use credit cards ahead of a ban on card payment fees this Saturday.
• Iata report airline passenger traffic up 8% year on year in November, signalling ‘robust demand’. CEO of Iata, Alexandre de Junaic, said ‘The airline industry is in a good place entering 2018. November’s strong demand gives the industry momentum.’ But added; ‘Challenges, however, remain. Security threats continue. Infrastructure issues persist. Fees and charges are a growing part of the cost base.’
• New outbreaks of violence in Tunisia are overshadowing operator’s plans to return the country after the 2015 terror attack. Protests over anti-austerity measures have escalated, leading to the Foreign and Commonwealth Office issuing a travel alert on Wednesday.
• Frank Field, chairman of the Work & Pensions Committee, has suggested that some gyms are employing “dubious” employment practices in their use of self-employed personal trainers. Two gym companies have reported that their agreements were legal. The Telegraph quotes The Gym chief executive John Treharne stating the Employment Appeal Tribunal had recently ruled that when considering if someone is employed or self-employed, a fixed notice period “was unlikely to be compatible with employment”.
• Dropbox is reported to have filed documents for an IPO.
• A £50m expansion to Yorkshire Wildlife Park has been given the green light and will see 150 acres added to the park, creating up to 300 jobs.
• Viva Gym has acquired Fitness Hut from Edge Capital. Viva Gym is backed by Bridges Fund Management.
FINANCE & MARKETS:
• EU industrial output rose by 3.2% in the year to November.
• ECB minutes suggest the ECB is considering its policy re QE. It would, perhaps, be surprising if it were not
• Oil briefly hit a 4yr high of over $70 yesterday. It is now $69.05.
• Sterling up vs dollar at $1.3543
• Pound down vs Euro at €1.1244
• UK 10yr gilt yield up 3bps at 1.32%
• World markets: UK mixed yesterday with Europe down and the US up. Far East mostly higher in Friday trade
• Brexit, politics etc.:
o President Trump has cancelled a visit to London next month
o Report commissioned by Mayor of London Sadiq Khan suggests a no-deal Brexit could cost the UK £50bn and a ‘lost decade’ for growth.
o PM Theresa May has told bankers from Goldman Sachs and other houses that they are a priority in Brexit talks
o Nigel Farage has called for a second referendum on Brexit to put the issue to bed and to consign its opponents to obscurity
ADMIN UPDATE, RESEARCH ETC.
• Langton is between offices. Please communicate via email. MIFID II is now in operation.
• We are putting together a compendium of 60-seconds pieces for publication this month at £200 plus VAT, free to clients. Please let us know if you would like a copy.
PRIOR DAY LATER TWEETS:
• Later tweets: Hospitality workers’ pay packets +10.4% in 2017. Very high & considerable problem. Inflation <3%, wages as a whole c2% & many LfLs negative
• Performance mixed with fall of Christmas (on Monday), helpful for many operators. Strangely companies looking to exit perform best
• Winners / losers. NXT, TSCO, John Lewis vs MKS, Mothercare, Debs, Moss Bros, Card Factory. Internet is key.
• Fleurets: pub values ‘remarkably resilience’. Davis Coffer Lyons also very bullish. Operators, however, looking for rent cuts & disposals
• Trade deficit down aided by art & treasure sales. Family silver, anyone? NIESR says UK GDP +0.6% in Q4. Not too shabby
START THE DAY WITH A SONG:
We changed the pace a little yesterday with Marvin Gaye’s ‘I Heard It Through The Grapevine’. See if you can get the last song of the week:
I light a cigarette ’cause I can’t get no sleep,
There’s nothing on the TV, nothing on the radio
That means that much to me
RETAIL NEWS WITH NICK BUBB:
• B&M: The share price of our “Tip for 2018” has got off to a quiet start to the year, after a strong end to 2017, but hopefully today’s Q3 update (for the 13 weeks to Dec 23rd) will restore some momentum. The update is headlined “A Strong Third Quarter with Record Christmas Trading” and the news is that group sales growth in the quarter was 22.7 % at constant currency, including a 3.9% increase in B&M UK LFL revenues. The City had hoped a tad more than 3.9% LFL growth, but the comps were strong (+7.2% a year ago) and B&M call out “the continued robust performance of our grocery and FMCG ranges, further operational improvements to store standards for customers and the recognition of our value offer by consumers generally” and say that “management is confident that the group will meet market expectations for EBITDA for the current financial year”. CEO Simon Arora says that
• Waitrose Watch: Yesterday’s Christmas trading update from JLP (for the 6 weeks to Dec 30th) contained one surprise, which is that there was no new space contribution in the sales figures from Waitrose (given recent closures etc), so that the LFL growth was quite a bit better than we had thought. Adjusting for the later fall of New Year’s Eve, the underlying LFL sales growth was 2.2%, which is respectable relative to its peers (“in a market which continues to be highly competitive with industry margins under pressure”), helped by strong Online sales and the successful one-day offers. The New Year’s Eve timing impact unwound last week, with total sales up 6.9% in w/e Jan 6th, but the underlying increase was c2%. The cumulative run-rate has now edged up to 1.6% after 23 weeks of the second half (a bit over 1% up LFL).
• BDO High Street Sales Tracker: John Lewis may have had a quiet time last week, but today’s BDO High Street Sales Tracker for small/medium-sized Non-Food chains for last week, w/e Sunday Jan 7th, says that Fashion Store LFL sales edged up by 1.3%. And including Homewares and Lifestyle chains, total Store LFL sales were up by 1.5%. Overall Online sales were strong, at +18% (versus +20% a year ago), with Online Fashion sales 23.8% up.
• Trade Press (1): The front cover of Retail Week magazine today is a montage of photos of Retail fascias, to flag up a feature on the “Who will conquer 2018?”, with various “Retail experts” predicting the industry’s biggest winners and losers in the year ahead. We went for B&M and House of Fraser respectively and they were popular choices elsewhere, but the Editor went for ASOS and Boots respectively. In terms of News stories, RW highlights the news that Debenhams and Mothercare warned on profits this week and that Retail sales were “muted” in December, after Non-Food sales slumped (according to the monthly BRC-KPMG survey). And in his column the Editor thunders that “As retail polarises, shops need new purpose”.
• Trade Press (2): In Drapers magazine today the Editor thunders in her column that it’s “Time to find strength from Retail’s challenges”. Drapers also have a list of 2018 predictions from leading industry players, including the view of Anthony Thompson of Fat Face that “I predict quite a few leadership changes”. Other features include a “Next Generation” focus on 30 rising stars in the fashion industry, an interview with Jack Wills founder Peter Williams and a spotlight on the lack of ethnic diversity in fashion retail businesses. The main News stories in Drapers are that it was “A tale of two Christmases for High Street retailers” and that House of Fraser has informally asked landlords for rent cuts.
• News Flow Next Week: A rather quieter week lies ahead, but there’s still plenty going on, kicking off on Tuesday with the Dunelm Q2 update, the Greggs Q4update and the JD Sports update. Wednesday brings the Burberry Q3. Then on Thursday we get the Halfords Q3 update and the ABF (Primark) update, as well as the Ocado new segmental reporting update. And on Friday we get the Bonmarche update and the Pets at Home Q3 update, as well as the ONS Retail Sales figures for December.